(Nov 14): The European Parliament has voted to dramatically wind back the bloc’s environmental, social and governance (ESG) rules following intense pressure from US business associations and state attorneys general.
The development means that more than 90% of companies originally in scope of ESG reporting requirements will no longer need to comply. Other planks of the rulebook that emerged as a sticking point for the US have been dropped entirely. After Thursday’s vote, the legislation now heads for approval by the European Union’s member states.
The EU responded to concerns raised by America’s fossil-fuel industry and the American Chamber of Commerce, said Pascal Canfin, a senior lawmaker for the centrist Renew Party. “They won,” he said.
As a long-time bastion of ESG, Europe’s decision to slash regulations once viewed as standard-setting marks a stunning retreat. In the US, ESG has been vilified by the Trump administration as “woke” and anti-American. In Europe, however, concerns have centred mostly on the costs associated with complying rather than on ideological arguments.
“We put competitiveness back on the agenda,” said Jorgen Warborn, a Swedish lawmaker from the centre-right European People’s Party who oversaw negotiations, in a statement. He also said that the final outcomes proves “that Europe can be both sustainable and competitive”. And while the European Parliament listens to “all the different stakeholders”, it ultimately acts in the interest of Europe, he said.
The changes agreed on by EU lawmakers mean that 92% of companies that would have been subject to the Corporate Sustainability Reporting Directive (CSRD) will no longer be in scope, according to Julia Otten, a senior policy officer at advocacy NGO Frank Bold. Lawmakers also voted to drop a requirement that companies produce climate transition plans under the Corporate Sustainability Due Diligence Directive (CSDDD). A proposal to introduce EU-wide civil liability is also off the table.
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Lawmakers didn’t address the issue of extraterritoriality, whereby countries outside the EU need to comply with its ESG rules if they target the bloc’s markets. But with other parts of the legislation effectively wiped out, lawmakers said the cuts approved by Parliament remove many of the issues that had triggered concern in the US.
Marjorie Chorlins, a senior vice-president for Europe at the US Chamber of Commerce, said the adjustments to CSDDD “represent meaningful progress towards a more balanced and effective framework”, in an emailed comment late on Thursday.
“However, we remain concerned about the directive’s extraterritorial reach,” she added.
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Valdis Dombrovskis, Europe’s economy and productivity commissioner, said in an interview with Bloomberg Radio last week that the EU was listening to such concerns. At the same time Teresa Ribera, the executive vice-president of the European Commission, has warned against excessive deregulation.
Negotiations with member states to finalise changes to the CSRD and CSDDD are expected to begin almost immediately. Thursday’s Parliament vote was the latest step in a large-scale regulatory simplification process underway in the EU intended to competitiveness in the bloc. However, detractors warn the move risks undermining the bigger goal of delivering on climate and social goals key to EU values.
The legislation was “the best tool to discourage companies from relocating to countries that do not respect social, environmental or human rights”, said Terry Reintke, a co-president of the Greens-EFA party, in a statement. “The right and the far right destroyed our ability to regulate economic stakeholders and our major instrument for encouraging companies to preserve and create jobs within the EU.”
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